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Entries in trading in stock market for beginners (6)

TechniTrader Stock Trading "Using Bollinger Bands Stock Indicator"

Bollinger Bands Identify Candlestick Platforms Prior to Runs

Bollinger Bands® have been gaining in popularity in the past couple of years. This is no surprise given the changes in the Market Structure, and how price behaves with more of the Exchanges, Dark Pool Alternative Trading Systems, Electronic Communication Networks, and other order venues now automated.

Using Bollinger Bands in TC2000 Charts offers a highly visual method of seeing the compression patterns that occur before breakouts of significant magnitude.

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This indicator also helps those individual investors and retail traders who are still struggling with Spatial Pattern Recognition Skills™ and have trouble recognizing whether at stock is still trending up or down, or if it has shifted sideways. The sooner an individual investor or retail trader can identify a sideways shift the better, because sideways patterns require different entries, stop losses, and exit strategies.

It is important to maintain a good ratio on your chart screen so that the Bollinger Bands are properly displayed. Many times traders attempt to use too many indicator windows on one chart template layout. Be sure that the height and width ratios are close to the Golden Mean ratios.

Using Bollinger Bands in TC2000 Charts makes it far easier to determine if a Candlestick Platform is underway, or if it is a wider sideways Trading Range pattern. Below is an example of a stock that had been in a Trading Range pattern over a few months, then it had a High Frequency Trader velocity run. The current compression shows near perfect horizontal Bollinger Bands on both the upper and lower band, indicating that price is compressing inward equally from highs and lows. This is a powerful price Platform Market Condition pattern that is often missed by beginner Independent Investors and Traders.

The equal compression means that there is equilibrium between buyers and sellers at that moment, which tends to favor the upside after an High Frequency Trader driven velocity run. Quiet accumulation is underway with Dark Pools using Alternative Trading Systems, their buying going on unnoticed for the moment. Dark Pools control price to create this Platform Market Condition candlestick pattern on stock charts. Since the first velocity run was triggered by High Frequency Traders, the next move up is likely to also be a High Frequency Trader gain day.

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See in the second chart example below, that in the next few days the stock moved up a little higher and compressed again, then High Frequency Traders move the stock up a couple of points in one day.

Summary

The entire sideways action after the first High Frequency Trader velocity run was a period of quiet accumulation with Dark Pools buying, and the general market exchanges unaware of their activity. Once the word gets out, High Frequency Traders automated orders drive price upward. There were two entries before the stock moved up on High Frequency Trader price action, and both offered a low risk entry prior to the big run day.

Using Bollinger Bands in TC2000 Charts properly requires incorporating Volume indicators. Bollinger Bands is a Price Channel indicator, so the direction the stock will take is not easily evident to most individual investors and retail traders. Adding Volume provides a complete set of data, with all the necessary information to determine which direction the stock will move out of its compression pattern.

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Trade Wisely,

Martha Stokes CMT

Chartered Market Technician
Instructor and Developer of TechniTrader Stock & Option Market Courses

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